Global equities bounce-back on improving sentiment. World stock markets advanced on Thursday, snapping a six-day losing streak, as investors expressed optimism as the Federal Reserve signaled that the economic backdrop is improving, and that it will keep U.S. monetary policy accommodative indefinitely. Investor sentiment was also lifted after U.S. President Barack Obama’s overnight State of the Union address seemed to focus on the economy rather than banking reforms which had spooked financial markets. However, gains in European stocks were limited by concerns about the fiscal health of some Euro Area economies such as Greece and Portugal. Meanwhile, oil prices rose above $74/bbl, rebounding from six-week lows, after a drop in U.S. crude inventories.

European shares bounced back from a one-week slide, as the benchmark Dow Jones Stoxx-600 climbed 1% in afternoon trading sessions. Meanwhile, the MSCI Asia-Pacific Index gained 0.8%, ending an eight-day decline of 6.9%. Taiwan’s Taiex-Index increased 1.8%, leading the region’s gain, while Japan’s Nikkei-225 and Hong Kong’s Hang-Seng Index both added 1.6%. Meanwhile, U.S. equities opened lower this morning, led by technology shares, with the S&P 500 Index and Nasdaq Composite Index slipping 0.2% and 0.6% respectively.

Source: Department of Commerce, Bureau of Census

U.S. durable goods orders post increase. New orders for durable goods increased 0.3% (m/m) in December, following two months of moderate declines, according to the latest release from the Commerce Department [see chart]. At the same time, shipments of manufactured goods increased a sharp 2.9% (m/m), while inventories at factories slipped 0.2%, signaling a rise in production at factories in line with demand. Orders for durable goods excluding the often volatile transportation equipment category increased 0.9% in December, painting a picture of a broader based recovery for durables. These figures suggest that business investment may have contributed positively to GDP growth in the final quarter of 2009, estimates for which the Commerce Department will release tomorrow.

In a report from the Labor Department…New claims for unemployment insurance fell by a modest 8,000 to a seasonally adjusted level of 470,000 for the week ending January 22; while the 4-week moving average increased for the second week in a row by 10,000 to 456,250. The Labor Department stated last week that the recent surge in claims was due to an administrative backlog, which may still be artificially inflating data that was released today. The December job report found U.S. job losses unexpectedly high, leaving the unemployment rate unchanged at 10%. Even with an administrative backlog exaggerating the number of claims, it is clear that labor markets remain under pressure from a sobering number of layoffs, which are likely to push the unemployment rate up for January.

Euro Zone economic confidence climbs. Confidence in the Euro Zone economy as measured by surveys undertaken by the European Commission, improved more-than expected in January, as the Economic Sentiment Indicator for the region increased for a tenth month to 95.7, from an upwardly revised reading of 94.1 for December. Business confidence in the region has grown in recent months as companies have stepped up production to meet rising external demand for European manufactures.

Japanese retail sales point to continued weakness in demand. Sales at retail outlets in Japan fell 1.2% (m/m) in December after remaining unchanged the month before, according to a new release from the Ministry of Economy, Trade and Industry. In year-over-year terms, retail sales fell 0.3% in December, the 16th straight month of declining sales, disappointing the median market forecast which had predicted a modest increase in sales. Consumer demand in Japan remains subdued, despite some improvement in the unemployment rate since July, and continued improvement in the manufacturing sector on the back of external demand. Declining wages and continued deflationary pressures are likely to suppress consumer spending and provide headwinds for the retail industry.

Among emerging markets:

In Latin America and the Caribbean, Brazil’s unemployment rate eased to 6.8% in December, the lowest in a year, and equal to a record low, as the economy continues to recover from recession. Chile’s industrial output declined 0.3% in December (y/y), while industrial sales declined 1.8% over the same period, according to the national statistics institute.

In Central and Eastern Europe, Poland’s economy expanded 1.7% during 2009, the only EU country to post positive growth. However, this represents a marked deceleration from 5% growth achieved in 2008. GDP gains are expected to pick-up to 2.6% in 2010 according to the Economy Ministry. Fixed investment declined 0.3% in 2009, after rising 8.2% the previous year, as the government spent €20 billion ($28.1 billion) in building roads, hotels, airports and stadiums for the 2012 soccer tournament.

Lithuania’s GDP contracted less in the fourth quarter according to preliminary data, shrinking 13% (y/y) down from a 14.2% contraction in the third quarter. This may signal that the severe recession in the country is finding a bottom. On the quarter, output was up 0.1% after a 6.1% increase in the previous three months. Industrial output declined 8.3% in the fourth quarter compared to a decline of 14.7% the previous quarter. GDP contracted 15% in 2009, following an expansion of 3.2% in 2008, and is expected to see “zero or small plus” growth in 2010, according to the central bank.

In Sub-Saharan Africa, South Africa’s producer prices increased for the first time in eight months in December, edging up 0.7% on the month, after falling 1.2% the previous month. This increases the odds that the central bank will leave its benchmark key interest rate unchanged.

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